Discrete choice estimation of risk aversion

We analyze the use of discrete choice models for the estimation of risk aversion and show a fundamental flaw in the standard random utility model which is commonly used in the literature. Specifically, we find that given two gambles, the probability of selecting the riskier gamble may be larger for larger levels of risk aversion. We characterize when this occurs. By contrast, we show that the alternative random preference approach is free of such problems.

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Year of publication:	2014-09
Authors:	Apesteguia, Jose ; Ballester, Miguel A.
Institutions:	Department of Economics and Business, Universitat Pompeu Fabra
Subject:	Discrete Choice \| Structural Estimation \| Risk Aversion \| Random Utility Models \| Random Preference Models

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Extent:	application/pdf
Series:	Economics Working Papers.
Type of publication:	Book / Working Paper
Classification:	C25 - Discrete Regression and Qualitative Choice Models ; D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010929579